Understanding Income Replacement Benefits for Ontario Car Accidents: How to get the insurer to start paying!

Almost every client who enters my law firm has the same idea after they’ve been injured in an accident:

“I ‘ve been paying my car insurance premiums for years and years; now that I’ve been hurt; it’s now the insurance company’s turn to play their part and start paying me benefits“.

In a perfect world, this is exactly how insurance would work. You pay premiums; and when you need it most, the insurance company pays you benefits. But the world is far from perfect. That’s why we have lawyers…

What exactly are those so called “benefits” and how do they work?

The term “benefits” is so loose and broad. What people have in mind for benefits is greatly different than what those benefits are.

The first benefit which may come to mind is a benefit which replaces your income if you can’t return to work on account of a serious injury.

Under the SABS/Insurance Act, this is called an income replacement benefit or IRB.

It’s a common misconception that the IRB covers 100% of your wages. It doesn’t. It also doesn’t kick in until 7 days after the accident. And just because you’ve been involved in a car accident, doesn’t automatically entitle you to an income replacement benefit. There are a variety of medico-legal tests which need to be met. In addition, you need to prove with real concrete evidence that you were gainfully employed in the 52 weeks prior to the accident and earning an income (not unreported cash income).

Helping accident victims understand exactly how the income replacement benefit works is not an easy task for a variety of reasons. But, this Toronto Injury Lawyer Blog post will do its best to de-mystify the IRB.

The first thing you need to do to qualify for the IRB after you’ve been involved in car accident is to apply for accident benefits by completing the OCF-1 Application for Accident Benefits. You will also need to complete other forms which specifically address the IRB, including the OCF-3 Disability Certificate (for your doctor or therapist); and the OCF-2 Employers’ Confirmation of Income Form . You will also be asked to submit medical evidence (hospital records, doctor records etc.) along with the police records in relation to the accident to your insurer. On top of that, they will also want copies of your tax returns going back for around 3-5 years; along with an employment file. The insurance company will want to do your homework in assessing your entitlement to the income replacement benefit.

Speaking of entitlement, here are the medico-legal definitions to qualify for the IRB.

Over the first 104 weeks (two years), entitlement to the IRB is defined by s. 5 of the SABS as:

“a substantial inability to perform the essential tasks of one’s own employment”

After two years have elapsed (post 104 week period), entitlement to the IRB is defined as:

“a complete inability to engage in any employment, for which her or she is reasonably suited by education, training or experience”.

Entitlement is predicated upon impairment being suffered. Impairment is defined in s. 2 of the Regulation: “a loss or abnormality of a psychological, physiological or anatomical structure or function”. Elsewhere in the legislation, particularly in the definition of catastrophic impairment, an additional criterion is available – that of “behavioural disorder”. This is a form of behavioural or psychological abnormality.

But just because you may meet these medico-legal definitions of impairment for the IRB, still doesn’t mean that you’ll qualify for it. You need to show that you were working in the year prior to the car accident. Here is the nitty gritty for employment:

(a) employed on the date of the accident; or

(b) not employed but either worked 26 or the 52 weeks before the accident

How do you show this? Get the employment file. Get a letter from your employer. Get the employer to complete the OCF-2 Employer’s Confirmation of Income Form.

What happens for self employed people, independent contractors or small business owners? Another good question. Insurers are the MOS T DIFFICULT on people who were self employed or who ran their own business at the time of the car accident. Proving income in these cases can be difficult; especially when there’s a lot of unreported cash.

Rule of thumb: If you don’t report it on your tax returns; you can’t claim it for insurance purposes. On one hand, you can’t report to Revenue Canada that you were earning $15,000/year; but then tell the insurance company that for the purposes of the car accident case you were making $150,000/year because it was a cash business. That won’t fly in a Court of Law. You will be stuck with the figures you’ve reported to Revenue Canada. Sorry. The Court won’t let you have it both ways.

The maximum benefit under a Standard Automobile Policy of Insurance, without having upgraded the benefits is just $400/week! Repeat that. It’s only $400/week!

You can opt for a higher weekly amount, but under 1% of the population actually does (because it costs more to do so). Talk to an insurance broker about increasing your weekly IRB amount. While you’re at it, you should also chat with them about increasing the liability from $1,000,000 to $2,000,000. It’s cheaper than you think.

For formula for getting to that $400/week is even more silly. The formula is calculated by taking 80% of your net weekly income for the last year or last month (whichever is greater). This formula really hurts part time employees or workers who work more hours when they need more money. The fact that you can no longer work to make more money isn’t properly reflected in the IRB formula or quantum. To add insult to injury, the IRB quantum of $400/week under the standard automobile policy has been at this level for over 10 years and has NOT been adjusted for inflation (while a deductible that works to the insurer’s benefit has recently been adjuster for inflation).

Now you know how income replacement benefits work. But just because you better understand how IRBs work, doesn’t mean that the insurer will simply pay them out automatically. Remember: the more money which an insurer pays out to you in benefits; the less money they get to keep for themselves and report as profit. The insurance company has something you want and you’re fighting for: MONEY. They won’t bend down easily to give it up. That’s exactly why you need a skilled, experienced and aggressive personal injury lawyer on your side.